Kaplan 2.0

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Kaplan’s fortunes are looking up. The education company no longer has to pick up the slack for The Washington Post, the venerable newspaper and loss leader that Kaplan’s corporate owner, the Washington Post Co., just sold off.

Even better, Kaplan is back in the black itself after years of tumbling enrollments and profits, which were driven in part by the weak economy and the for-profit sector's scandal-fueled regulatory woes.

The current excitement about online courses, competency-based degrees and other potential “disruptions” to higher education could also help the company. That’s because Kaplan is trying to add an ed-tech edge to its more conventional, degree-offering subsidiaries, more so than most of the other big for-profit chains.

“They’ve always been more diversified,” said Corey Greendale, an industry analyst and vice president of First Analysis. However, Greendale adds that the “bulk of the business is Kaplan Higher Education.”

The company’s higher education division, which began offering online degrees in 2001, makes most of its money with the largely online Kaplan University and other degree and certificate programs. Kaplan Higher Education kicked in slightly more than half the company’s $2.2 billion in revenue last year, according to a corporate filing. Test preparation and the international division were the other big draws.

While Kaplan’s side business in emerging delivery forms of education might be small in dollars, the company is rolling out a broad array of products.

Colleges contract with Kaplan to go online through its Colloquy division. Two clients include Brandeis University’s division of graduate professional studies, which partnered with Kaplan for the marketing and recruiting of its master's in information security, and Paul Quinn College, a Texas college that launched an online bachelor’s degree completion program with Kaplan.

The company runs an “accelerator,” or incubator, for education-technology companies. It also offers a massive open online course platform and is experimenting with digital badging, game-design theory and prior learning assessment.

Last month Kaplan bought Grockit, Inc., a social learning platform. And in June the company gave a makeover to its Hesser College, a business school, changing its name to Mount Washington College.

The revamped institution will add self-paced, fully online business degrees to its on-ground programs. It will also experiment with a hodgepodge of promising new approaches, like badging, stackable credentials and e-portfolios. Annual tuition for Mount Washington's new online business program will be up to $6,000.

Kaplan is increasingly shopping what it knows about learning science across its various divisions and to other institutions. But the company’s philosophy on technology veers away from the superficial, said Bror Saxberg, Kaplan’s chief learning officer. That means not just posting Web videos of professors’ lectures.

“You’ve got to start from the fundamentals,” Saxberg said, “about which a lot is known and almost none used at scale.”

Kaplan’s direction in some ways resembles that of Pearson Education, the former publishing company that has morphed into an education giant, with a broad range of offerings in online education and adaptive learning.

Much of what Kaplan brings to the table about competency-based education, big data and assessments comes from its 75-year-old test prep division. That work allows the company to start with an emphasis on student outcomes and workforce development, company officials said, and then “reverse engineer” its higher education program.

Kaplan’s branching out could be a boon, observers said, particularly amid the continued outsourcing and “unbundling” of online education.

“When we think about all the assets that we have, and compare those against the other people in the space, we are awfully optimistic,” said Tom Leppert, chief operating officer of Kaplan, Inc. “We’ve got probably the best set of cards that are sitting out there.”

Dark Days No More?

A challenge for Kaplan will be the stigma that continues to cling to for-profit higher education in the eyes of many. The company has had its share of scrutiny in recent years, including criticism for relatively high student loan defaults and dropout rates and aggressive student recruiting.

Kaplan’s brand carries a taint, said David Hawkins, director of public policy and research for the National Association for College Admission Counseling. “It is quite serious, if not existential,” said Hawkins, who has been critical of the student recruiting practices of some for-profits.

The opus of the for-profit wars of recent years is the investigative report released last year by the staff of Sen. Tom Harkin, an Iowa Democrat and frequent critic of the sector. The report took its shots at Kaplan, but also praised the company for changing its ways.

Kaplan has “implemented the most significant reforms of any company examined,” according to the Harkin report, and “showed a commitment to becoming a company far more focused on student success.”

Those changes came at a hefty price.

Chief among the reforms Harkin praised was the Kaplan Commitment, a three-week trial period for students who enroll at Kaplan University. The program, which the university introduced in 2010, allows students to take three free weeks of courses before deciding to stick with the program. The university can also turn away students who are deemed unprepared.

Kaplan also gave up on enrolling "ability to benefit" students, who lack high school diplomas or a GED, before the federal government dropped aid for that group.

Those voluntary moves contributed to steep enrollment and revenue declines at Kaplan. The other drivers, which much of the for-profit sector has experienced, include a more price-sensitive market, tighter federal regulation and bad press.

New student enrollments dipped by 47 percent in the first year after the trial period was rolled out. This summer Kaplan University and the company’s other campuses enrolled 62,000 students, down from 112,000 three years ago, according to corporate filings.

Kaplan is closing nine of its campuses and consolidating four others. The company’s total revenue was down last year by more than $600 million compared to 2010.

However, Kaplan appears to have hit the bottom. While its revenue declined a bit in the most recently reported quarter, the company also turned a profit, with operating income of $24 million. New student enrollments were up by 21 percent.

Whether the company can re-emerge with a stronger brand depends largely on how its 62,000 currently enrolled students fare, Hawkins said, both in higher education and the job market.

But Hawkins acknowledged that Kaplan Test Prep is a trusted name, at least as far as test preparation goes. And several observers said Kaplan’s reputation could get a boost from the company’s embrace of many of the promising “innovations” in higher education, which generally enjoy the support of powerful foundations and lawmakers on both sides of the aisle.

Kaplan has also gotten attention for some of the big names it has recruited, said Michael Horn, co-founder and executive director of the Clayton Christensen Institute for Disruptive Innovation.

Saxberg is well-known in education technology, Horn said, and has impressive academic credentials. Peter P. Smith, the company’s senior vice president for academic strategies and development, also gets plenty of exposure. Smith is a former Congressman and public-sector college president.

Kaplan is “catching some notice,” Horn said. But the “question is executing in this new world.”

Selling to Colleges

Both Kaplan’s test prep and international divisions already do substantial business with traditional colleges.

Kaplan Test Prep offers a wide range of test-taking tools while operating classrooms and proctoring centers around the globe. Last year 427,000 students took the courses.

Through that experience Kaplan has gleaned huge amounts of data on what company officials call “short-term learning.” That in turn has enabled the company to commodify some of its learning science techniques, particularly competency-based assessments and intervention methods when students need help.

For example, Kaplan’s many university partners include a “collection of medical schools in the Southwest,” according to a spokesman. (The company, which tends to be somewhat private about its partnerships, declined to name those institutions.) Kaplan officials said the medical schools are using a suite of learning-outcome grounded assessments, some of which are aimed at admissions decisions.

Kaplan’s track record with exam proctoring and professional licensure exams puts it in a good position to shop assessments to colleges, said Russell Poulin, deputy director for research and analysis at the WICHE Cooperative for Educational Technologies. That could be a good business as competency-based education spreads.

“It might be a wise move for them to move into those areas,” Poulin said.

The company also has a healthy stable of college clients for its international division. That operation helps prepare and recruit students to study at universities in the United States, Australia and United Kingdom. Domestic partners include Northeastern University, Pace University and the University of Utah.

“We think that the things that we’re doing can be awfully helpful to institutions, especially here in the United States,” said Leppert.

Kaplan’s international division revenue was up 5 percent for the last quarter, to $188 million. It also earned $6 million in profit.

Those numbers easily beat the beleaguered Washington Post newspaper, which Amazon.com founder Jeff Bezos bought last week for $250 million. The newspaper brought in $138 million in revenue last quarter, with a 10 percent operating loss of $15 million.

The Washington Post Company’s name is going to change, according to the terms of the newspaper’s sale. And some observers have wondered if Kaplan will get billing in the new name.

Besides Kaplan, the company owns lucrative cable television and broadcasting operations, as well as other businesses, like a company that builds components for industrial furnaces. But Kaplan is still the big player, more so now that the newspaper is gone -- it accounts for 62 percent of the company’s total revenue.

So even if Kaplan isn’t in the new name, the Washington Post Co. will continue to lean on the education company.